UK Edition
Chief executives are side-lining ethical and green goals as they focus on shoring up their businesses ahead of a potential recession.
Around half of bosses are planning on “pausing or reconsidering” their environmental, social and corporate governance (ESG) efforts in the next six months, according to a survey by KPMG. More than a third have already done so.
Most chief executives said ESG concerns were important and pointed to greater demand from staff and investors for increased reporting and transparency around the issues.
But with economic turmoil deepening, many will be forced to sideline ethical considerations as they instead redirect cash to revenue-generating parts of the business. More than eight out of 10 global chief executives surveyed expect a recession within the next 12 months.
Jon Holt, chief executive of KPMG, said: “Business leaders in the UK are predicting and preparing for an imminent recession.
“Many are having to make hard choices now to help their businesses weather the volatile conditions they face, with some telling us they are cutting back on important areas such as investing in their workforce and making their business more sustainable.”
ESG has grown rapidly in the last few years from a fringe concern into a major force in the City, with funds carrying the ESG badge now controlling hundreds of billions of pounds.
Proponents argue the ratings system has the potential to channel cash towards making the world a better place by encouraging social progress, limiting climate damage and establishing strong systems of control at companies.
However, critics say ESG is often applied inconsistently and fails to reflect the complexity of the real world.
Rupert Soames, outgoing chief executive of Serco, is one of the most vocal dissenting voices on ESG in the City. In August, Mr Soames, a grandson of Winston Churchill, told The Telegraph that Russian President Vladimir Putin’s actions had served as a reminder of the importance of national security and changed the attitude of many of the more “extreme” ethical investors.
He said many investors had made a “screeching U-turn” over their opposition to the defence sector since the start of the war.
Analysts at Deutsche Bank on Tuesday warned that the ESG sector could decline if uncertainty continues to grip markets.
In a note to clients, they wrote that a “key swing factor” in the company months would be whether European companies and governments will continue to support ESG markets.
In the US, more than a dozen Republican-leaning states are trying to prevent finance firms from taking ESG factors into account in a bid to protect industries such as oil and defence.
Deutsche Bank said upcoming third-quarter results would signal how committed companies remain to ESG-related spending plans.